* Global stocks this morning are mixed with the Euro Stoxx 50 down -0.06% and MarS&Ps up +2.40 points. The dollar and Treasuries are lower and most commodities roseafter the IMF proposed a $500 billion expansion of its lending resources to insulatethe global economy against any worsening of Europe's debt crisis. The IMF ispushing China, Brazil, Russia, India, Japan and oil exporting nations to be the topcontributors to the bailout fund that may be initiated at the Feb 25-26 meeting ofG-20 finance ministers and central bankers in Mexico City. The IMF currently has$385 billion available for lending and wants to boost that amount to $885 billion. A positive for European bank stocks was the decline in the 3-month cross-currencybasis swap, the rate banks pay to convert euro interest payments into dollars, to 78bp below the euro interbank offered rate, a 5-1/4 month low. Limiting gains instocks and the euro was the action by Germany's Economy Ministry to cut its 2012German GDP forecast to +0.7%, down from an Oct forecast of +1.0% as the debt crisisdampens the outlook for sustaining exports. The World Bank also cut its growthestimates as they reduced their 2012 global growth forecast to +2.5% from a Juneestimate of +3.6%, saying a recession in the Euro-Zone threatens to exacerbate aslowdown in emerging markets.

The political strategy behind Obamanomics was always simple: Call for "stimulus" to rescue the economy, run up the debt with the biggest spending blitz in 60 years, and then when the deficit explodes call for higher taxes. The Congressional Budget Office annual review released yesterday shows this is all on track.

CBO reports that annual spending over the Obama era has climbed to a projected $3.6 trillion this fiscal year from $2.98 trillion in fiscal 2008, or more than 20%. The government spending burden has averaged 24% of GDP, up from an average of about 20%. This doesn't include the $2 trillion tab for ObamaCare.

All of this has increased the federal debt by about $5 trillion in a mere four years. Thanks to higher revenues, the federal deficit will decline to $1.08 trillion in 2012, or 7% of GDP. But that is still the highest deficit since 1946—except for the previous three years. In other words, the four years of the Obama's Presidency will mark the four highest years in spending and deficits as a share of the economy since Harry Truman sat in the Oval Office.

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CloseEPA .And don't forget the national debt held by the public—the kind we have to pay back. On President Obama's watch, CBO says public debt will climb this year to 72.5% of the economy from 40.3% in 2008. This isn't as high as Italy or Greece, but it's rising fast toward the 90% level that begins to debilitate an economy.

We pause from this gloom for some good news: Despite the abuse they've taken, House Republicans have made some fiscal progress. CBO estimates that overall federal spending in 2012 will grow by only $3 billion, or less than 1%, which compares with double digit increases during the Obama-Pelosi years. Republicans have also tried to reform entitlements, but Democrats wanted a $1 trillion tax hike ransom for even modest cuts, which was wisely rejected.

The other part of the fiscal story is that revenues have been in the tank for five years. In 2012 revenues will hit $2.52 trillion down from $2.57 trillion in 2007. Revenues are still only 16.3% of GDP, about two percentage points below the norm.

The drought has two main causes. First, the anemic recovery in jobs and investment isn't spinning off enough new output (1.7% growth last year) to boost tax receipts anywhere near their historic level.

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Close...Second, a series of non-stimulative tax cuts—tax rebates in 2008 and 2009, and payroll tax holidays in 2011 and this year—have depleted the Treasury with little economic benefit. These tax cuts don't change the incentive at the margin to work or invest, and they thus have little feedback effect in revenues from faster growth.

The most amusing part of the CBO's report is its projection that the deficit will fall to $269 billion by 2015, or a mere 1.5% of GDP, if current law holds. But this is a fiscal fantasy because current law never holds.

CBO predicts, for example, that all the Bush tax cuts will go away next year. The Alternative Minimum Tax will supposedly be allowed to hit 30 million tax filers (up from four million now) with an income as low as $75,000 a year. Under those assumptions total federal revenues rise by $1 trillion over the next three years, $1.5 trillion over five years, and $3.6 trillion over 10 years. You can't get anywhere near that level of revenues without a much bigger tax increase on the rich and the middle class, or an extended boom in the range of 5% to 6% annual growth.

Even the Keynesians who run CBO concede that the 2013 tax hike—on capital gains, dividends, estates and small business—would knock economic growth down to 1% next year and raise unemployment to 9.1% (from 8.5%). That means about 750,000 more jobless Americans. You can't have such a lousy economy and cut the deficit in half.

CBO also indulges in the fantasy that discretionary spending will fall by nearly $2 trillion over the next decade—with almost all the cuts after 2015. About $1.25 trillion of those cuts come from the automatic across-the-board reductions that Congress and Mr. Obama agreed to last year. But wait. More than half of those cuts will come from the military budget and even Defense Secretary Leon Panetta has said these reductions could be "devastating" to national security.

To sum it all up, CBO's facts plainly show that Mr. Obama has the worst fiscal record of any President in modern times. No one else is even close.

Pollster and political analyst Scott Rasmussen says the U.S. is in the middle of a worsening fiscal crisis and the federal office charged with estimating the country's debt has missed the mark by trillions.

Rasmussen, of Rasmussen Reports, released this statemen today following yesterday's Congressional Budget Office report on the nation's debt:

The Congressional Budget Office (CBO) yesterday reported that the federal budget deficit is projected to reach $1.1 trillion in 2012. That number is troubling enough but the reality is much worse. The United States will actually go about $4 trillion further in debt during the year.

The difference comes from the fact that government accounting procedures simply ignores the cost of benefits being promised for future Social Security and Medicare recipients. While precise estimates vary as to how much these promises cost, they are in the range of $3 trillion annually. It is important to note that the CBO is not to blame for this accounting gimmick. That agency typically does a sound job of operating within the ground rules established by Congress. Unfortunately, the rules often make little sense.

As former CBO Director Douglas Holtz-Eakin explained to Scott Rasmussen, “The debt from the past is a problem, but the future potential debt is a crisis.”

Let's see 17 K per person 70K per family of four. Yet if we remove the roughly 50% who pay no income tax or those who are retired on SS what is the real cost to today's workers (some pay a payroll tax I guess) and their working children. Though since a large number of those under 20 - 25 yo are unemployed - bottom line - the toll on those carrying this load is FAR worse:

****President Obama’s fourth budget has now been released, which allows for a relatively full accounting of deficit spending during his four years in office. The picture isn’t pretty, but it is revealing.

According to the White House’s own figures (see table S-1 here for 2011 to 2013, and table S-1 here for 2010), the actual or projected deficit tallies for the four years in which Obama has submitted budgets are as follows: $1.293 trillion in 2010, $1.300 trillion in 2011, $1.327 trillion in 2012, and $901 billion in 2013. In addition, Obama is responsible for the estimated $200 billion (the Congressional Budget Office’s figure) that his economic “stimulus” added to the deficit in 2009. Moreover, he shouldn’t get credit for the $149 billion in TARP (Troubled Asset Relief Program) repayments made in 2010 and 2011 to cover most of the $154 billion in bank loans that remained unpaid at the end of the 2009 fiscal year — loans that count against President Bush’s 2009 deficit tally.

Adding all of this up, deficit spending during Obama’s four years in the White House (based on his own figures) will be an estimated $5.170 trillion — or $5,170,000,000,000.00.

To help put that colossal sum of money into perspective, if you take our deficit spending under Obama and divide it evenly among the roughly 300 million American citizens, that works out to just over $17,000 per person — or about $70,000 for a family of four.***

I wonder what that works out to per taxpayer? IIRC the labor force is currently aound 60-M, which is about 1/5 th population, so if my numbers are correct, we are looking at about $350,000 per taxpayer?

The Foundation"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas JeffersonGovernment & PoliticsTinkering With the Payroll Tax

Tinkering with, but not fixing, tax policyCongress finally reached an agreement Thursday to extend the payroll tax "holiday" for the rest of 2012 and will likely vote on it today. The tax cut, due to expire at the end of February, was a gimmick conceived in late 2010 and sold as an economic stimulus. Yet the extra $80 a month for someone earning $50,000 a year hasn't helped the economy much. In fact, economic growth slowed in 2011 compared to 2010. At least neither party can be accused of raising taxes on the middle class in an election year.Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, congratulated Congress on a job well done, saying that maintaing the two percentage-point reduction in the payroll tax for the rest of the year is "good for the country. It's very good for the country." Actually, not really. As already mentioned, it had no significantly positive affect on the economy. Perhaps more important, it will take $100 billion out of the so-called "trust fund" for Social Security this year, thereby adding to the national debt.That's not to say Social Security's "trust fund" wasn't already an accounting farce. The money taken from today's workers finances today's retirees because politicians have been raiding the "trust fund" for years -- all that's left are Treasury IOUs. Social Security ran a deficit of approximately $45 billion last year, and even the IOUs will run out within the next generation.As for the deal, it includes once again extending the "doc fix" for Medicare -- preventing 27 percent cuts to reimbursement rates -- as well as unemployment benefits. Republicans saw the Democrats' election-year trap and caved on their insistence that the $100 billion the government would otherwise have collected in payroll taxes be offset by other budget cuts. They could do little more than retreat, lest they face disingenuous accusations that they don't care about the poor and middle class.The argument they should have made is two-fold: First, a couple of questions: Will January 2013 be a good time to raise taxes on workers after a two-year holiday? Given the stagnant Obama economy, and the massive tax hikes scheduled in his outrageous budget, we doubt it. And do Republicans think Democrats won't blame them no matter when it happens? Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid (D-NV), certainly gave the game away during negotiations: "Democrats will continue working to extend this middle class tax cut, and Republicans will rightfully get blamed if Americans see their taxes go up on March 1." Insert "January 1, 2013" and you have a future talking point.Second, practically since its creation, Democrats have accused Republicans of trying to destroy Social Security. Rather than point out the farce, Republicans have adopted Democrat talking points. They should highlight the Democrats' plan to make Social Security into an ever-growing entitlement, regardless of what one pays -- or doesn't pay -- into it. Republicans should argue for Social Security reform to go along with this cut, along the lines that Rep. Paul Ryan (R-WI) proposed. So forgive us if we've found a tax cut that doesn't excite.What do you think of the payroll tax holiday?Quote of the Week"Our party firmly believes in the safety net. We reject the idea of the safety net becoming a hammock. ... What Republicans have long understood is that poor communities are best served when they're empowered to care for themselves. The more they come to rely on government checks, the less they learn to rely on their own ability and ingenuity. For this reason, the Republican value of minimizing government dependence is particularly beneficial to the poorest among us. Conversely, the Democratic appetite for ever-increasing redistributionary handouts is in fact the most insidious form of slavery remaining in the world today, and it does not promote economic freedom." --Rep. Allen West (R-FL)The 'Alpha Jackass' Budget PlanBarack Obama may be proud of his socialist "Winning the Future" budget, but in Senate testimony this week, Treasury Secretary Timothy Geithner said his boss's budget is unsustainable: "Even if Congress were to enact this budget, we would still be left with -- in the outer decades as millions of Americans retire -- what are still unsustainable commitments in Medicare and Medicaid." In 2011, Geithner had similar observations: "With the president's plan, even if Congress were to enact it, and even if Congress were to hold to it, we would still be left with a very large interest burden and unsustainable obligations over time." Apparently, somebody in the Obama administration understands that Obama's debt bomb will collapse the economy.Asked about Obama's broken pledge to "cut the deficit in half," his spokesman Jay Carney insisted, "It was a promise based on what we knew about the economy at the time. The economy turns out to have been far worse and in far greater distress ... than we knew at the time. The catastrophe was far worse than we knew."For leftists, history never includes what they said yesterday. For the rest of us, we know better. In 2008, Obama claimed, "I think everybody knows now that we are in the worst financial crisis since the Great Depression." After three years of his presidency, he's right. Maybe Carney just meant it was even worse than that.Obama claims his budget includes $4 trillion in deficit reduction over 10 years. The problem is, the cuts are either completely phony -- such as not spending money in Iraq or Afghanistan -- or nothing more than reductions in growth, and nearly half of the "saved" $4 trillion comes in the form of tax hikes.Indeed, Obama views tax cuts as government spending. Of the Bush tax rates that have been in effect for 10 years now, he said, "Right now, we're scheduled to spend more than $1 trillion more on what was intended to be a temporary tax cut for the wealthiest two percent of Americans. We've already spent about that much. Now we're expected to spend another $1 trillion."As you may recall, on July 3, 2008 -- the day before Independence Day -- Obama lectured the nation on "patriotic responsibility," saying, "The problem is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt ... so that we now have over $9 trillion dollars of debt that we are going to have to pay back. [That's] $30,000 for every man, woman and child. That's irresponsible. It's unpatriotic."In three years under Obama, make that $15 trillion in debt. That's more than $50,000 for every man, woman and child. "That's irresponsible. It's unpatriotic."The BIG LieThe day before Obama released his budget blather, White House Chief of Staff Jack Lew was challenged twice on the Sunday morning political roundtables about the fact that Senate Democrats haven't passed a budget in almost three years. He responded, twice, "You can't pass a budget in the Senate of the United States without 60 votes and you can't get 60 votes without bipartisan support," implying that Republican partisanship is to blame.Memo to Jack: Senate rules require a simple majority of 51 votes to pass a budget, and for the last three years, Democrats have held a Senate majority.Memo to Sunday morning interlocutors of Obama administration mouthpieces: Do your homework, and call these guys out on their lies.

The Economist has a lot to say about US government *over*regulation in this week's issue. I saw this article on Cass Sunstein who is decried from the right as a big liberal. Sunstein is marketed by the WH as being this big government 'spending/cut' Czar. A lot of smoke and mirrors as one would expect from the Obama WH. That said not all of Sunstein's opinions are that liberal though his stance on taxes certainly is one of a big liberal government cheerleader (see the Wikipedia piece on him below; I read with some skepticism for the objectivity of what shows up in Wikipedia).

Certainly in making its analyses the OIRA appears to exaggerates the benefits, and minimize the costs of any government program the WH wants to promote or conversely cut:

****..Deleting regulationsOf Sunstein and sunsetsMany barriers impede regulatory reform. The poor quality of the laws Congress produces is among the biggestFeb 18th 2012 | NEW YORK | from the print edition

The busy nudgemeister .CHEERS greeted Barack Obama’s hiring of Cass Sunstein away from the University of Chicago. Mr Sunstein, a lawyer, now head of the Office of Information and Regulatory Affairs, is in charge of lifting the heavy hand of regulation from America’s economy. Known for his clever economics, Mr Sunstein favours a “libertarian paternalism”; policies that nudge, but do not force, people to do the right things. For example, making people opt out instead of opting in to pension plans makes many more sign up, to their benefit. And Mr Sunstein has been involved in redesigning dietary recommendations and fuel-efficiency stickers for cars, making formerly confusing information more useful.

Mr Sunstein is now in charge of overseeing a year-old executive order from Mr Obama telling every agency to slim its rule book. Mr Sunstein says every one has complied, with 580 proposals received from the departments under his purview. (Independent agencies like the Securities and Exchange Commission are not among them.) And he says real savings are on the way. Lifting a requirement for states to require pollution vapour-recovery systems will save $400m in five years. Making it easier for doctors and hospitals to participate in the Medicare programme for the elderly will save $5 billion. He adds that agencies have responded not grudgingly (the old stereotype of bureaucrats loth to surrender cash or power), but eagerly.But the Obama administration has added to the rule book at the same time as it is trimming. And many of the rules are big: 194 of them, each with an economic impact (not necessarily a net cost) of $100m or more, have been published in the Federal Register. In George Bush’s first three years, 141 hit the books. Even if most have more benefits than costs, as the agencies’ economists calculate, the scope of regulation is not shrinking. The overall cost of regulation is unknown, and measurement controversial. One study for the Small Business Administration found that regulation cost $1.75 trillion a year in 2008, though many object to the analysis. It relies on a methodology, invented at the World Bank, which one of the bank’s researchers says was misused, and Mr Sunstein dismisses it as “an urban myth”.

Meanwhile, the executive agencies are accused of minimising costs by counting only hours spent on paperwork or money spent on kit to comply with regulation. The real costs may be found in the hard-to-calculate perversion of behaviour that over-regulation causes. At the same time, the benefits tallied up by regulators may be overvalued (see article). The agencies calculate their own numbers, using their own methodologies. But what no one doubts is that compliance with the ever-expanding rule book is wearisome and hard.

Furthermore, the politics of removing regulations is harrowing. Each removal must go through the same cumbersome process it took to put the regulation in place: comment periods, internal reviews and constant behind-the-scenes lobbying. Ironically, regulated industries may actually not want regulations removed. They have sunk costs into compliance, and do not want those costs taken away to the benefit of upstart competitors.

Many proposals are floated to deal with this last problem. One, supported by the Republican candidate Mitt Romney, is to remove one regulation for each new one that is proposed. A second idea is to create a truly independent scorer for regulatory costs and benefits, modelled on the widely respected Congressional Budget Office. A third is to create a board of outside grandees to help break political deadlocks, like the Base Realignment and Closure commission, which was able to prod Congress to shut down military bases. And yet another is creating a full-time advocate for regulatory rollback: one state, Kansas, has created an “Office of the Repealer”, which aggregates complaints and suggests repeals to the governor and legislature. Lastly, automatic “sunsets” of laws have their fans, though Congress could mindlessly reauthorise laws gathered up in omnibus bills (and a bitterly divided Congress might allow good laws to lapse).

Finally, one bad idea is the REINS bill. Passed by the House, it would involve Congress more heavily in rule-making. If there is a body worse than the executive agencies at this kind of thing, it is Congress. A 1999 study by the OECD found that poorly written laws, not subsequent rule-writing, were at the heart of America’s regulatory woes. (No one has been foolish enough to suggest that Congress has become wiser since then.) Jim Cooper, a Democratic House member from Tennessee, says of his colleagues: “People vote on things they have not read, do not have the time to read, and cannot read.” He further despairs of the power of special interests to bend Congress’s will: “There is a pimento lobby,” he says of those who fight for the interests of those who grow the small red peppers served inside olives. “You do not want to cross the pimento people.” In such an environment, getting things undone is at least as hard as getting them done, and perhaps harder still.****

Glenn Beck loathes Cass Sunstein, and IIRC regards him as "the second most dangerous man in America" or something like that. Though the details don't spring to mind at the moment, GB supports his position with considerable specificity. The tenor of this piece is at considerable variance from GB.

Exactly my thoughts. That is why I question the veracity or intellectual honesty of the author of the Wikipedia piece. Based on that piece I question why GB and others (Hannity) hold Sunstein out as a looney liberal. OTOH are GB and others the ones who are exaggerating? I doubt they are. Far more likely the Wikipedia piece is tempered to camouflage the truth.Just like Obama conceals who he really is. All the same with liberals. They cannot tell us what they really think and aspire to.

Not if they want to stay in office unless they are from Barney Frank's (now ANOTHER freakin Kennedy's) or Pelosi's districts.

Brock also with corporate tax plan. At least the idea of fixing taxes has traction if the biggest White House liberal is running scared enough to try to beat the Repubs to the punch with his won tax plan before his election.

Let's see him running for cover -

Suddenly he is a big fan of natural gas.

Suddenly whispers from the WH that military force in Iran may be needed.

Suddenly the Bamster is for corporate tax streamlining.

Doesn't fit with his usual narative does it.

Of course we have also lerned not to trust what he says but watch what he and his minions (like Eric Holder) do.

Trillion plus still in deficit and the budget thread slipped to page two in political topics. Not very sexy, not even urgent?

Another chart with credits to Scott Grannis. Policy-caused recessions and slowdowns cause budget gaps on their own confounded by additional policy choices/mistakes, so there are at least 4 levels of collective stupidity on display here. Note that when the economy is running reasonably well the gap tends to close in spite of our horrific appetite for wasteful largess.

Look at the more recent uptick in revenues, but also look at it in context with wherever you judge the long term trtend line should be.

Please complete the following sentence. This course we are on is sustainable because .......................................................... .

"Please complete the following sentence. This course we are on is sustainable because .......................................................... ." [Accompanied with the picture of our eternal deficit trend.]

Crafty: "because , , , ummm , , , well , , , nevermind."-------------------------The gallant effort is duly noted though I think that is also what Geithner (Treas. Sec.) said when asked what year the outgoing administration's budget balances.

One of three things is going to happen.

1) We can slash current spending by a net trillion a year to balance the budget - or can we? This is pretty much the Ron Paul proposal but he hasn't even won a far right caucus state yet. The trillion would have to be net savings, not just cutting government jobs where the people end up getting federal dollars anyway. Politically speaking, this option is not even on the table for discussion. For all the root canal negotiations for cuts last year following the landslide, power changing, off-year elections, domestic spending was up another 5%.

2) Win a mandate and implement supply-side, pro-growth policies that include tax system reform, regulatory reform and spending growth restraint, and keep all the reforms in place over an extended period of time while we grow our way out of this.

3) Stay on the present course and find out exactly when GM's prediction of our demise will come true - where the only investments surviving are canned foods and dry gun powder.

.. And my returns look like this “THE most beautiful deleveraging yet seen” is how Ray Dalio describes what is now going on in America’s economy. As America has gone through the necessary process of reducing its debt-to-income ratio since the financial crash of 2008, he reckons its policymakers have done well in mixing painful stuff like debt restructuring with injections of cash to keep demand growing. Europe’s deleveraging, by contrast, is “ugly”.

Mr Dalio’s views are taken seriously. He made a fortune betting before the crash that the world had taken on too much debt and would need to slash it. Last year alone, his Bridgewater Pure Alpha fund earned its investors $13.8 billion, taking its total gains since it opened in 1975 to $35.8 billion, more than any other hedge fund ever, including the previous record-holder, George Soros’s Quantum Endowment Fund.

In this sectionThe new grease?»Man and machinePausing for breathFixing LIBORYear of the tortoiseBetter Than Goldman?Natural stock selectionArise and fallBond shelterReprints

Related topicsUnited StatesGeorge SorosBusinessEconomicsEconomic crisisMr Dalio, an intense 62-year-old, is following in the footsteps of Mr Soros in other ways, too. Mr Soros has published several books on his theories, and is funding an institute to get mainstream economists to take alternative ideas seriously. Mr Dalio, too, is now trying to improve the public understanding of how the economy works. His economic model “is not very orthodox but gives him a pretty good sense of where the economy is,” says Paul Volcker, a former chairman of America’s Federal Reserve and one of Mr Dalio’s growing number of influential fans.

Whereas Mr Soros credits the influence of Karl Popper, a philosopher who taught him as a student, Mr Dalio says his ideas are entirely the product of his own reflections on his life as a trader and his study of economic history. He has read little academic economics (though his work has echoes of Hyman Minsky, an American economist, and of best-selling recent work on downturns by Carmen Reinhart and Kenneth Rogoff) but has conducted in-depth analysis of past periods of economic upheaval, such as the Depression in America, post-war Britain and the hyperinflation of the Weimar Republic. He has even simulated being an investor in markets in those periods by reading daily papers from these eras, receiving data and “trading” as if in real time.

In the early 1980s Mr Dalio started writing down rules that would guide his investing. He would later amend these rules depending on how well they predicted what actually happened. The process is now computerised, so that combinations of scores of decision-rules are applied to the 100 or so liquid-asset classes in which Bridgewater invests. These rules led him to hold both government bonds and gold last year, for example, because the deleveraging process was at a point where, unusually, those two assets would rise at the same time. He was right.

What Mr Dalio calls the “timeless and universal” core of his economic ideas is set out in a 20-page “Template for Understanding” that he wrote shortly after the collapse of Lehman Brothers in 2008 and recently updated. The document begins: “The economy is like a machine.” This machine may look complex but is, he insists, relatively simple even if it is “not well understood”. Mr Dalio models the macroeconomy from the bottom up, by focusing on the individual transactions that are the machine’s moving parts. Conventional economics does not pay enough attention to the individual components of supply and, above all, demand, he says. To understand demand properly, you must know whether it is funded by the buyers’ own money or by credit from others.

A huge amount of Bridgewater’s efforts goes into gathering data on credit and equity, and understanding how that affects demand from individual market participants, such as a bank, or from a group of participants (such as subprime-mortgage borrowers). Bridgewater predicted the euro-zone debt crisis by totting up how much debt would need to be refinanced and when; and by examining all the potential buyers of that debt and their ability to buy it. Mr Volcker describes the degree of detail in Mr Dalio’s work as “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”

Two sorts of credit cycle are at the heart of Mr Dalio’s economic model: the business cycle, which typically lasts five to eight years, and a long-term (“long wave”) debt cycle, which can last 50-70 years. A business cycle usually ends in a recession, because the central bank raises the interest rate, reducing borrowing and demand. The debt cycle ends in deleveraging because there is a “shortage of capable providers of capital and/or a shortage of capable recipients of capital (borrowers and sellers of equity) that cannot be rectified by the central bank changing the cost of money.” Business cycles happen often, they are well understood and policymakers are fairly adept at managing them. A debt cycle tends to come along in a country once in a lifetime, tends to be poorly understood and is often mishandled by policymakers.

An ordinary recession can be ended by the central bank lowering the interest rate again. A deleveraging is much harder to end. According to Mr Dalio, it usually requires some combination of debt restructurings and write-offs, austerity, wealth transfers from rich to poor and money-printing. A “beautiful deleveraging” is one in which all these elements combine to keep the economy growing at a nominal rate that is higher than the nominal interest rate. (Beauty is in the eye of the beholder: Mr Dalio expects America’s GDP growth to average only 2% over a 15-year period.)

Print too little money and the result is an ugly, deflationary deleveraging (see Greece); print too much and the deleveraging may become inflationary, as in Weimar Germany. Although Mr Dalio says he fears being misunderstood as saying “print a lot of money and everything will be OK, which I don’t believe, all deleveragings have ended with the printing of significant amounts of money. But it has to be in balance with other policies.”

Mr Dalio admits to being wrong roughly a third of the time; indeed, he attributes a big part of his success to managing the risk of bad calls. And the years ahead are likely to provide a serious test of whether the economic machine is as simple as he says. For now, he is in a more optimistic mood thanks to the European Central Bank’s recent moves, in effect, to print money. Although he still expects debt restructuring in Spain, Portugal, Italy and Ireland, on top of that in Greece, he says that the “risk of chaos has been reduced and we are now calming ourselves down.” Here’s hoping he is right again.

http://online.wsj.com/article/SB10001424052702304636404577291830334896896.html?mod=WSJ_hp_LEFTTopStoriesBy NAFTALI BENDAVID House Republicans, searching for an election-year message amid a muddled political and economic landscape, will introduce a 2013 budget Tuesday that cuts tax rates and provides for just two individual brackets of 10% and 25%.The budget would end the Alternative Minimum Tax, which originally was aimed at the wealthy but ensnares a growing number of middle-class taxpayers each year. The plan would nearly eliminate U.S. taxes on American corporations' earnings from overseas operations.The proposal, to be offered by Rep. Paul Ryan (R., Wis.), who has become the Republicans' leading figure on budget issues, has little chance of becoming law soon. It is likely to be welcomed by House and Senate Republicans, and rejected by the Democratic-controlled Senate. But with Republicans struggling to agree on a presidential nominee and a campaign theme, party leaders hope the easy-to-understand tax-cut proposal will give Republican candidates a clear and popular message."We don't expect to make law this year, but we expect to give the country an alternative choice for the future," Mr. Ryan, who chairs the House Budget Committee, said in an interview. "We're going into this election with a specific plan and showing how we could realize it and get it done."The document was drafted with input from Rep. David Camp (R., Mich.), who heads the tax-writing Ways and Means Committee and has long pushed for tax overhaul. MoreIndividuals • Current: There are six tax rates of 10%, 15%, 25%, 28%, 33% and 35%• Proposal: Reduce that to two rates of 10% and 25% Alternative Minimum Tax • Current: There are two rates, 28% and 26%. The Alternative Minimum Tax is affecting growing numbers of middle-class households• Proposal: Eliminate the Alternative Minimum Tax Corporations • Current: The top rate of 35% is among the developed world's highest• Proposal: Lower the top rate to 25%Multinational Earnings • Current: The U.S. seeks to tax multinationals' overseas earnings. However, companies can defer the tax until the money is brought home• Proposal: Nearly eliminate U.S. taxes on American corporations' earnings from overseas operationsSource: WSJ Research"We think it's very important to have a clear message on jobs and the economy," Mr. Camp said. "The code is too costly, too burdensome, and it's hurting job creation, so we think we should take action."Democrats see the tax proposal as an attempt to deflect attention from the more controversial parts of Mr. Ryan's budget, such as a Medicare overhaul and a decision to set lower 2013 spending levels than those agreed to in the debt-limit deal in August. "Republicans are on a maddening push once again to end Medicare and raise health-care costs for seniors, while giving more special tax breaks to big oil companies and millionaires," said Rep. Steve Israel (D., N.Y.), who coordinates the House Democrats' campaigns.Mr. Ryan caused a furor among Democrats last year by proposing to change Medicare from a program in which the government pays directly for health care into a "premium support" program for those currently 55 or younger. Medicare would subsidize beneficiaries' premiums as they bought private insurance.Last year, Democrats hammered the GOP for seeking to unravel a long-standing program that ensures the elderly get health care. Since then, Mr. Ryan has teamed up with Sen. Ron Wyden (D., Ore.) to propose an alternative that would let beneficiaries use their premiums to buy into traditional Medicare as well as private insurance and that is expected to be in the new plan.

By PAUL RYAN Less than a year ago, the House of Representatives passed a budget that took on our generation's greatest domestic challenge: reforming and modernizing government to prevent an explosion of debt from crippling our nation and robbing our children of their future.

Absent reform, government programs designed in the middle of the 20th century cannot fulfill their promises in the 21st century. It is a mathematical and demographic impossibility. And we said so.

We assumed there would be some who would distort for political gain our efforts to preserve programs like Medicare. Having been featured in an attack ad literally throwing an elderly woman off a cliff, I can confirm that those assumptions were on the mark, but one year later, we can say with some confidence that the attacks have failed. Courageous Democrats have joined our efforts. And bipartisan opposition to the path of broken promises is growing.

And so Tuesday, House Republicans are introducing a new Path to Prosperity budget that builds on what we've achieved.

Like last year, our budget delivers real spending discipline. It does this not through indiscriminate cuts that endanger our military, but by ending the epidemic of crony politics and government overreach that has weakened confidence in the nation's institutions and its economy. And it strengthens the safety net by returning power to the states, which are in the best position to tailor assistance to their specific populations.

More important, it tackles the drivers of our debt and averts the fiscal crisis ahead. This year, our nation's publicly held debt is projected to reach 73% of the economy—a dangerously high level that, according to leading economists, puts the nation at risk of a panicked run on its finances.

As shown in the nearby chart, our budget tackles this crisis head-on by cutting debt as a share of the economy by roughly 15% over the next decade, putting the nation's finances on a path to balance, and paying off the debt. By contrast, the president's budget pushes debt as a share of the economy even higher. In his budget's own words, it allows the government's fiscal position to "gradually deteriorate" after 2022.

On the critical issues of health security and tax reform, our budget draws a clear distinction between serious reformers and those who stand in the way of the growing bipartisan consensus for principled solutions.

Our budget's Medicare reforms make no changes for those in or near retirement. For those who will retire a decade from now, our plan provides guaranteed coverage options financed by a premium-support payment. And this year, our budget adds even more choices for seniors, including a traditional fee-for-service Medicare option.

We also introduce a competitive-bidding process to determine the growth of government's financial contribution to Medicare. Forcing health plans to compete against each other is the best way to achieve high-quality coverage at the lowest cost, and implementing these reforms in Medicare can have the effect of lowering health-care costs for everyone. This is the key to increasing access and affordability while preventing government debt from threatening the health security of seniors and the economic security of all Americans.

Our budget also spurs economic growth with bold tax reform—eliminating complexity for individuals and families and boosting competitiveness for American job creators. Led by House Ways and Means Committee Chairman Dave Camp, our budget consolidates the current six individual income tax brackets into just two brackets of 10% and 25%.

We propose to reduce the corporate tax rate of 35%, which will soon be the highest rate in the developed world, to a much more competitive 25%. Our budget also shifts to a "territorial" tax system to end the practice of hitting businesses with extra taxes when they invest profits earned abroad in jobs and factories here at home.

We reject calls to raise taxes, but revenue nevertheless remains steady under our budget because we close special-interest loopholes. More important, our reforms will grow the economy—and the faster the economy grows, the more revenue the government will have to meet its priorities and start paying down the debt.

These patient-centered Medicare reforms and pro-growth tax reforms have a long history of bipartisan support. Medicare reforms based on choice and competition have their roots in the Clinton administration's bipartisan Commission on the Future of Medicare. And in recent years, I've worked with Democrats to advance these reforms.

Tax reforms based on lowering tax rates and closing loopholes go back to the Reagan administration, when Democrats served as the congressional co-sponsors of the landmark 1986 tax reform law. More recently, the chairmen of President Obama's bipartisan fiscal commission put forward a plan for lower rates and a broader base.

It makes sense that these ideas have attracted leaders in both parties. The premium support model offers the only guarantee that Medicare can keep its promise to seniors for generations to come. And pro-growth tax reform, by lowering rates for all Americans while closing loopholes that primarily benefit the well off, can eliminate unfairness in the tax code and ensure a level playing field for all.

While these ideas have enjoyed growing bipartisan support, President Obama has doubled down on policies that have drawn growing bipartisan opposition.

With regard to Medicare, his latest budget calls for giving "additional tools" to the Independent Payment Advisory Board, an unaccountable board of 15 unelected bureaucrats empowered by the new health-care law to cut Medicare in ways that will lead to denied care for seniors. Just this month, Democrats and Republicans alike voted for a measure to repeal this board.

And with regard to tax reform, the president's latest budget calls for taking more from American families and businesses by raising rates and adding complexity to the tax code—precisely at odds with the bipartisan consensus for tax reform.

It is rare in American politics to arrive at a moment in which the debate revolves around the fundamental nature of American democracy and the social contract. But that is where we are. And no two documents illustrate this choice of two futures better than the president's budget and the one put forward by House Republicans.

The president's budget gives more power to unelected bureaucrats, takes more from hard-working taxpayers to fuel the expansion of government, and commits our nation to a future of debt and decline.

The contrast with our budget couldn't be clearer: We put our trust in citizens, not government. Our budget returns power to individuals, families and communities. It draws inspiration from the Founders' belief that all people are born with an unalienable right to the pursuit of happiness. Protecting this right means trusting citizens, not nameless government officials, to decide what is in their best interests and make the right choice about our nation's future.

Mr. Ryan, a congressman from Wisconsin, serves as chairman of the House Budget Committee.

Sure this could be the usual pork project but someone who has time and the wherewithal should look into whether Mr. Reid owns any land or is joint owner of any land anywhere near this project. This has bribe written all over it and the Reidster was noted for this kind of thing before:

Early last year Joe Biden and Transportation Secretary Ray LaHood announced the administration’s intention to sink $53 billion into high speed rail systems in the coming years. That news must have invigorated Harry Reid more than a cowboy poetry reading under his pomegranate trees, because now taxpayers might end up on the hook for an amount of money that could make Solyndra look insignificant:

On a dusty, rock-strewn expanse at the edge of the Mojave Desert, a company linked to Senate Majority Leader Harry Reid wants to build a bullet train that would rocket tourists from the middle of nowhere to the gambling palaces of Las Vegas.

Privately held DesertXpress is on the verge of landing a $4.9 billion loan from the Obama administration to build the 150 mph train, which could be a lifeline for a region devastated by the housing crash or a crap shoot for taxpayers weary of Washington spending.

The vast park-and-ride project hinges on the untested idea that car-loving Californians will drive about 100 miles from the Los Angeles area, pull off busy Interstate 15 and board a train for the final leg to the famous Strip.[...]Transportation Secretary Ray LaHood has publicly blessed the train — it means jobs, he says — and it’s cleared several regulatory hurdles in Washington.

Yet even as the Federal Railroad Administration considers awarding what would be, by far, the largest loan of its type, its own research warns it’s difficult to predict how many people will ride the train, a critical measure of financial survival, an Associated Press review found.Let me get this straight… the Obama administration might put taxpayers on the hook for billions to pay for a train so people can travel to the city that a couple of years ago Obama told them not to waste money in? “All aboard the Mixed Message Express!”

Then there’s the inevitable “well, we were gonna do this ourselves, but since you offered…”****

The Nevada lawmaker has been implicated in yet another land scheme that this time could net him a tidy $50,000 to $290,000. Los Angeles Times investigative reporters Chuck Neubauer and Tom Hamburger, this week revealed that Reid paid $166 an acre for valuable northern Arizona land whose market value, according to the county assessor, four years ago was worth $2,144 an acre.

Who would be a big enough fool to sell Reid the land at such a ludicrously low price? A long-time pal who would financially benefit from some obscure legislation that the senator has often sponsored.

It worked like this, according to the Times:

In 2002, Reid (D-Nev.) paid $10,000 to a pension fund controlled by Clair Haycock, a Las Vegas lubricants distributor and his friend of 50 years. The payment gave the senator full control of a 160-acre parcel in Bullhead City that Reid and the pension fund had jointly owned. Reid's price for the equivalent of 60 acres of undeveloped desert was less than one-tenth of the value the assessor placed on it at the time. Six months after the deal closed, Reid introduced legislation [which failed to pass] to address the plight of lubricants dealers who had their supplies disrupted by the decisions of big oil companies. It was an issue the Haycock family had brought to Reid's attention in 1994, according to a source familiar with the events.

If Reid were to sell the property for any of the various estimates of its value, his gain on the $10,000 investment could range from $50,000 to $290,000.

It is a potential violation of congressional ethics standards for a member to accept anything of value -- including a real estate discount -- from a person with interests before Congress.

Reed apparently prefers to put his gains into dry desert land instead of into cold cash, as did Rep. William Jefferson (D-La.), whom the FBI said was harboring $90,000 in marked bills in his home freezer.

Last year the Associated Press disclosed that Reid "collected a $1.1 windfall on a Las Vegas land sale, even though he hadn't personally owned the property for three years." The deal was "engineered by Jay Brown, a longtime friend and former casino lawyer whose name surfaced in a major political bribery trial [last year] and in other organized crime investigations."

Reid and his office have denied any improprieties in these matters. Reid's spokesman noted that the transaction was "a sale, not a gift." The wording of the denial is interesting because Reid is co-sponsoring legislation that would ban "gifts" from lobbyists - or their clients - to lawmakers or their staffs. Reid himself touted that legislation in a Jan. 9 press release, "Reid: The Senate is committed to tough new ethics reform."

In a press release a day earlier ("Senate Democrats highlight commitment to tough new ethics reform"), Reid proclaimed: "The American people demanded change, and Democrats are ready to deliver. The new Democratic Senate is committed to giving American (sic) a government as good--and as honest--as the people it serves. The Senate will start with legislation that is good, and working together, we'll improve it to make it even better. In the end, the Senate will pass the most sweeping reforms since Watergate."

This is exactly the kind of hypocrisy, from both parties, that turns off so many Americans. It a word, it makes Americans vomit.

Let it not go by unnoticed that claiming and getting full credit for this brand of Democratic "ethics reform" is the luminous Democratic presidential contender Barack Obama of Illinois. "Now that the dust has settled and the new Congress is underway," he intoned, "we need to get down to business and show Americans that we are responding to their call for change. We now have the opportunity to give the American people what they deserve and demanded in November--real ethics and lobbying reform that holds their elected officials to the highest ethical standards."

This is from a senator who tromped around Africa, trailed by an adoring throng of media panderers, who condemned corruption there, but had nothing to say about the graft pervading his hometown and state. Quite the contrary, Obama last week endorsed Chicago Mayor Richard M. Daley for re-election this spring, even though the suspected, indicted and convicted percolate through his administration like water through a coffee-maker.

You've got to hand it to Reid. With a record like his, to claim that he is the champion of a new day of congressional ethics takes a lot of brass. He could prove it by resigning. Or Democrats could prove it by giving him the heave-ho as majority leader.

By LAWRENCE GOODMAN The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.

The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.

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Close...It is true that the U.S. government has never been more dependent on financial markets to pay its bills. The net issuance of Treasury securities is now a whopping 8.6% of gross domestic product (GDP) on average per annum—more than double its pre-crisis historical peak. The net issuance of Treasury securities to cover budget deficits has typically been a mere 0.6% to 3.9% of GDP on average for each decade dating back to the 1950s.

But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the nearby chart shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.

The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.

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CloseGetty Images .The failure by officials to normalize conditions in the U.S. Treasury market and curtail ballooning deficits puts the U.S. economy and markets at risk for a sharp correction. Lessons from the recent European sovereign-debt crisis and past emerging-market financial crises illustrate how it is often the asynchronous adjustment between budget borrowing requirements and the market's appetite to fund deficits that triggers a shock or crisis. In other words, budget deficits often take years to build or reduce, while financial markets react rapidly and often unexpectedly to deficit spending and debt.

Decisive steps must be implemented to restore the economy and markets to a sustainable path. First, the Fed must stabilize and purposefully reduce the size of its balance sheet, weaning Treasury from subsidized spending and borrowing. Second, the government should be prepared to lure natural buyers of Treasury debt back into the market with realistic interest rates.

If this happens, the resulting higher deficit may at last force the government to make deficit and entitlement reduction a priority. First and foremost, however, we must abandon the conventional wisdom that market demand for U.S. Treasury debt is limitless.

Mr. Goodman is president of the Center for Financial Stability and previously served at the U.S. Treasury.

Growth Grade: Paul Ryan’s Path to ProsperityMarch 29, 2012By Brian Wesbury Paul Ryan’s new budget (The Path To Prosperity) is a very positive step toward boosting economic growth. It reduces tax rates on individuals and corporations, cuts spending as a share of GDP, and reduces the burden of entitlements on future generations of taxpayers. There is a very good chance that this budget would begin a virtuous cycle for the economy similar to that of the 1980s, generating faster growth in GDP, more revenue to the federal government and less demand for government spending. The results will most likely be much better than the Ryan scoring assumes.

Clearly, White House spokesman Jay Carney makes the opposite case. He said supporters of the plan “have to be aggressively and deliberately ignorant of the world economy not to understand that clean energy technologies are going to play a huge role in the 21st century.” He added that these supporters “have severely diminished capacity to understand what drives economic growth in industrialized countries in this century if [they] do not understand that education is the key that unlocks the door to prosperity.”

Presumably, he is saying that Congressman Ryan’s proposed cuts in federal spending on clean energy and education will reduce the economy to rubble. But, nothing could be further from the truth. In fact, the growth grade for Carney’s economic statements is an “F.” Between the fourth quarter of 1982 and the fourth quarter of 1999, real GDP in the US expanded at a 3.8% average annual rate. During the past 10 quarters (beginning in March 2009) the economy has grown just 2.5% at an annual rate. In other words, the evidence, so far, suggests Carney is wrong. No one knows the future. Using government power to push the economy in one direction or another is an economic mistake that harms growth. See our growth grade on the Keystone pipeline.

But back to the Ryan plan. The growth grade is based on the macro-picture. What we know from history and cross-country analysis is that the bigger government is as a share of GDP, the weaker overall economic growth and job creation become. As an example, with its bigger government, Europe has had much higher unemployment rates and slower growth rates in the past 30 years than has the U.S.

The Ryan budget gets spending down to slightly less than 20% of GDP by 2015 and keeps it there. This will boost real growth by somewhere between 0.4% and 0.8% per year from what it would have been if spending would have remained at 23% of GDP. The top individual and corporate tax rates would be cut to 25% under the Ryan plan. This would boost growth, but with so few details of the tax cut provided, it is hard to give it credit for more than a slight boost to GDP. In the end, it is reduced spending that convinces markets that future tax rates can remain low.

Under the Ryan plan, total federal spending would be cut for two years and then begin to grow again. This would initially shrink the government sharply as a share of GDP (from 23.4% to 19.4%). But then, spending would accelerate again to a 5.0% annual growth rate between 2017 and 2022, and spending would rise back to 19.8% of GDP. This is a concern. The federal budget has never been in balance with spending above 19.5% of GDP — no matter what tax rates were in place.

But Congressman Ryan used static scoring models in his proposal for political purposes. These models do not give credit for positive economic feedback loops. Reduced spending will lead to higher economic growth. Higher economic growth will boost revenues and reduce the demands on governments at all levels, which will reduce the share of GDP devoted to government, which then starts the process all over again. This happened in the 1990s and the result was a boom in the economy and surpluses in budgets.

As a result, we anticipate that the plan will create even more economic growth than Ryan’s current scoring anticipates.

On this basis it would seem that the Budget deserves an A, or even an A+. However, while the budget would lift growth significantly, it is not a “perfect” budget from the growth perspective. Some on the right have attacked the plan because it makes little effort to immediately cut spending back to levels that would have existed if the huge spending spree of 2008/2009 had not happened. Some on the right also want to take this opportunity to “fix” entitlement programs for good.

The Ryan plan pushes off Social Security fixes to a future bi-partisan commission. This attempt to make the budget palatable to a bi-partisan majority means that the budget falls short of perfect. If growth were the only measuring stick, not political expediency or social expectations, the “perfect” budget would end entitlements and redistribution as we know them, and move the US toward free-market based solutions, like Chile’s defined-contribution social security system.

As a result, the Ryan plan gets a B+ because it still leaves issues unresolved. The growth grade is not made on a curve; it does not make adjustments for the current political environment.

Nonetheless, the Ryan plan will lift growth and create more prosperity. Sometimes prosperity makes government more willing to spend — think about the 1960s in the US, when prosperity created an environment conducive to creating the Great Society. But, sometimes it creates momentum for more positive change … as in the 1990s, when welfare reform was signed into law. In the end, the growth grader must support proposals that lift growth, even if they are not “perfect.”

"Just how bad things have become was illustrated by the floor defeat of Obama’s budget 414-0. It received not a single vote. “Republicans wrote an amendment that contained Mr. Obama’s budget and offered it on the floor, daring Democrats to back the plan, which calls for major tax increases and yet still adds trillions of dollars to the deficit over the next decade. … But no Democrats accepted the challenge.”"

I don't recall if Greta or Shawn played this last night. But head of GSA explaining that officials got bonuses because they were "entitled". This kind of corruption starts right at the top. We have the first guy in the WH whose modus operondi (sp?) is that total government control and power is good. He leads by example. Obama has a revolving door of money. "Punish your enemies" and "reward your friends". My God can any corrupt official be more explicit than this. HE is out of control and no suprise we are seeing more at lower levels.

I don't recall if Greta or Shawn played this last night. But head of GSA explaining that officials got bonuses because they were "entitled". This kind of corruption starts right at the top. We have the first guy in the WH whose modus operondi (sp?) is that total government control and power is good. He leads by example. Obama has a revolving door of money. "Punish your enemies" and "reward your friends". My God can any corrupt official be more explicit than this. HE is out of control and no suprise we are seeing more at lower levels.

The home of laissez-faire is being suffocated by excessive and badly written regulation

AMERICANS love to laugh at ridiculous regulations. A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an “F” at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children’s lemonade stands because the enterprising young moppets did not have trading licences. The list goes hilariously on.

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.

Hardly anyone has actually read Dodd-Frank, besides the Chinese government and our correspondent in New York (see article). Those who have struggle to make sense of it, not least because so much detail has yet to be filled in: of the 400 rules it mandates, only 93 have been finalised. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.

Flaming water-skis

Dodd-Frank is part of a wider trend. Governments of both parties keep adding stacks of rules, few of which are ever rescinded. Republicans write rules to thwart terrorists, which make flying in America an ordeal and prompt legions of brainy migrants to move to Canada instead. Democrats write rules to expand the welfare state. Barack Obama’s health-care reform of 2010 had many virtues, especially its attempt to make health insurance universal. But it does little to reduce the system’s staggering and increasing complexity. Every hour spent treating a patient in America creates at least 30 minutes of paperwork, and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

A plea for simplicity

Democrats pay lip service to the need to slim the rulebook—Mr Obama’s regulations tsar is supposed to ensure that new rules are cost-effective. But the administration has a bias towards overstating benefits and underestimating costs (see article). Republicans bluster that they will repeal Obamacare and Dodd-Frank and abolish whole government agencies, but give only a sketchy idea of what should replace them.

America needs a smarter approach to regulation. First, all important rules should be subjected to cost-benefit analysis by an independent watchdog. The results should be made public before the rule is enacted. All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them.

More important, rules need to be much simpler. When regulators try to write an all-purpose instruction manual, the truly important dos and don’ts are lost in an ocean of verbiage. Far better to lay down broad goals and prescribe only what is strictly necessary to achieve them. Legislators should pass simple rules, and leave regulators to enforce them.

Would this hand too much power to unelected bureaucrats? Not if they are made more accountable. Unreasonable judgments should be subject to swift appeal. Regulators who make bad decisions should be easily sackable. None of this will resolve the inevitable difficulties of regulating a complex modern society. But it would mitigate a real danger: that regulation may crush the life out of America’s economy.

$200 million from the taxpayer to build cars. No cars. No jobs here or even where they manufacture - in Finland! Taxpayer is blamed for not putting up more money. The only innovation that came out of it was to shift the entire innovation sector over to lobbying government for their dollars - while we mock and despise venture capitalists. Go figure.

Gov’t-Subsidized Company Goes Through Another Round of Layoffs: Plant Is ‘Absolutely Empty’

Govt Subsidized Company Goes Through Another Round of Layoffs: Plant Is Absolutely EmptyAn electric car manufacturer that was awarded more than half a billion dollars in loan guarantees from the Department of Energy has gone through a second round of layoffs....Analysts blame the lousy state of Fisker’s finances on the fact that the DOE has denied the company the second round of its loan....Fisker Automotive is given $193 million of a $529 million DOE loan to produce two lines of plug-in hybrid cars and, presumably, create jobs. The company is unable to find a contract manufacturer in the United States, so it outsources manufacturing jobs to Finland (the company vehemently denies charges that it has used any part of the federal loan to fund manufacturing operations in Finland). The automaker falls behind its production schedule and experiences “delays” in its sales (i.e. poor sales), depleting its capital. But to qualify for the rest of the $529 million loan guarantee, the company has to maintain a certain amount of capital. Therefore, in order to meet this DOE benchmark, Fisker Automotive decides it will save money by laying off an “undisclosed number” of employees.

Or as Axelrod will call it, another example of failure in the private sector.

When research is funded by the taxpayer or by charities, the results should be available to all without charge

"...a year of the Journal of Mathematical Sciences will set you back $20,100. In 2011 Elsevier, the biggest academic-journal publisher, made a profit of ($1.2 billion)... Such margins (37%) are possible because the journals’ content is largely provided free by researchers, and the academics who peer-review their papers are usually unpaid volunteers. The journals are then sold to the very universities that provide the free content and labour. For publicly funded research, the result is that the academics and taxpayers who were responsible for its creation have to pay to read it. This is not merely absurd and unjust; it also hampers education and research."

Finallly some numbers to prove what I have been saying all along. Jobless claims would be worse if not for all these people taking the quick way out. I believe probably half of all disability and workers comp is fraud or exagerated:

Finallly some numbers to prove what I have been saying all along. Jobless claims would be worse if not for all these people taking the quick way out. I believe probably half of all disability and workers comp is fraud or exagerated:

A few SS posts on the health care thread because Obamacare advocates argue the similarity. Question was posed, Why is it NOT optional?

JDN's answer is pretty good: the government doesn't want people to be on the dole any more than they are because they opted out of Social Security, but didn't save their money, and/or lost it in the stock market and therefore at age 65 have absolutely zero.

More simply, it would not exist if it was optional.

What we call Social Security has two different meanings. What the voters were sold or think of it as is a long term contract with the government where we pay in as we work and take payments back when we retire. They hold it in that lockbox for safekeeping and compounding on our behalf. Of course none of that is true and if it were true it would NOT be constitutional. The congress of 1935 like the congress of 2013 has no power to bind future congresses - in my reading of consent of the governed.

More accurately, social security is a single time-frame, tax and spend program with the formulas changed at will by congress. If you earn income you pay into the federal government according to the formula of the current tax, like an income tax - okay it IS an income tax. If you are eligible/ 'entitled' you receive a check in the amount according to the program formula, like a spending program - okay, it IS a government spending program completely separate from the tax. No lockbox, no compounding, no balancing.

There is nothing constitutionally controversial about the taxing income, it was specifically authorized in an amendment. And there is nothing controversial about spending money, we do $4trillion of that a year. And there is no long term contract.

If you make the program optional, the recipients opt in and the payers opt out.

If you make the program optional, it is commerce - a private, consensual, financial contract. We have entire industries already doing that.

If the contract was consensual you would not need the confiscatory, prosecutorial or threat of incarceration powers of the federal government to administer it.

Want a recipe for ruckus? Merely suggest that Social Security might be a “Ponzi scheme”. You might even end up on Drudge Report. Yet the facts bear out the thesis, as we shall see…

For starters, let’s be clear on what a Ponzi scheme is.

Charles Ponzi -- Image via Wikipedia

Say you’re in a scheming kind of mood and looking to get rich off it. Say you’re Bernie Madoff! You start by convincing a small group of people, say five of them, to each give you some money, say $1,000, with the promise that each month thereafter, you’re going to give them $50 back. That works out to $600 over the year, or a 60% rate of return. Not too shabby! These people are a little skeptical at first, but the promised 60% rate of return seems worth the risk. So you collect $5,000, but pay out $600 to each of these five people, $3,000 in total, leaving you ahead by $2000 at year end. So far so good — stick with me…

Here’s how you’ll fund the $3,000 you’re going to pay to those five people.

Not long after the first five, you find ten other people to also give you $1000, with the promise that they, too, will get $50 back each month thereafter. You take in $10,000, and over the course of the year, you pay back the $3,000 to the first group of five people, leaving you with $7,000 from the group of ten, plus the full $5,000 from the group of five, for a total of $12,000. But you still owe the group of ten $6,000. That’s OK, because after you pay them, you’re still ahead by $6,000.

You can repeat the same funding mechanism to pay back that group of ten. Find another ten people, or ideally, more than ten, promise each of them $50 a month, and pay them by using the incoming cash from yet another group of people. Keep this going for a while and all the people earning 60% a year on their money might even turn you on to their friends. It almost seems like a virtuous circle.

All the math for this will work out great provided you play by some simple rules. You absolutely must keep finding more people to pay in. You might need to start promising a lower return to new “investors”, just to help the math. Oh, and you’ll want to keep everyone in the dark about what’s really going on.

But eventually there just aren’t enough people in the world to solicit. And eventually some smart cookies begin to suspect too much of a good thing, and start asking pesky questions.

Now let’s examine Social Security.

Image via Wikipedia

When Social Security was started in 1935, workers paid 2% of their first $3,000 earned, or a maximum of $60. Of course, only those aged 65 and older could collect anything, and many of those collectors conveniently died not long thereafter. So even without full participation by every wage earner, the number of people paying in dwarfed those being paid out, and money began to pile up in what became known as the “Social Security Trust Fund”.

As trends (and thankfully, lifespans) have changed, the payer/payee relationship has not stayed constant. Michael Tanner of the Cato Institute documents some of the demographics as follows:

“In 1950, there were 16 workers paying taxes into the system for every retiree who was taking benefits out of it. Today, there are a little more than three. By the time the baby boomers retire, there will be just two workers who will have to pay all the taxes to support every one retiree.

- “Social Security: Follow the Math”, Michael Tanner, 1/14/2005

Think Cato’s some radical right-wing organization? Ok then, let’s see what the official Social Security Online website has to say in their 2010 summary:

“Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084.

So there’s your admission that this scheme has run its course, and even an admission that without legislative changes, people will be getting less than they thought.

Some people say, “There’s no problem here – just raise taxes further until we get the money that we need.” But what started at 2% has now become 12.4% when both the employee’s and the employer’s portions are considered. And keep in mind that the half paid by the employer represents monies that by definition can’t be paid to the employees or investors in the form of additional wages and/or returns. As the saying goes, corporations don’t pay taxes. People pay taxes.

Furthermore, the idea that we can just raise taxes and hit some projected revenue increase is fatally flawed by static analysis — the idea that people don’t respond to incentives and penalties. Tax increases routinely fail to yield the originally projected revenue. Lastly, you have to be willing to legislatively seize a lot of property that just doesn’t belong to you (regardless of what Michael Moore might say).

It’s not as if Franklin D. Roosevelt set out to create a Ponzi scheme. To this day, the nature of the system is fully disclosed, although now things are so scary that most people don’t want to look. Even when a few people are asked to look, like the recent commission headed by Alan Simpson and Erskine Bowles, the very President doing the asking looks away. In the meantime, people who do know that the scheme is mathematically unsustainable are drafting battle plans against those who might, horrors!, try to give some control over the situation back to individuals.

Like so many government programs, Social Security started off with great intentions, but morphed into something else. Some people refute the Ponzi scheme comparison largely on the grounds that unlike a traditional Ponzi scheme, Social Security is completely disclosed, was never sold to as a way to make anyone rich, and that it has good intentions rooted in compassion for the poor.

Hold on to your wallets. Just because a fraud is being perpetuated in full view doesn’t mean it’s not a fraud. It simply means people are either not paying attention, or don’t understand what they’re looking at. Regarding not trying to make anyone rich, that’s precisely correct, if only ironically. The creation of Social Security probably did incalculable damage by disincentivizing saving and investing. It ratcheted up moral hazard big time, and nudged untold millions of people into looking towards government for solutions, rather than to themselves and the private sector. And as for good intentions, isn’t that what a certain road to a certain nasty place is paved with? Or at the minimum, The Road to Serfdom?

Yes, I agree with both of you. The FDR starting tax rate of 1% each on the employer and the employee on the first $3,000 of earnings, never to surpass a $90 total contribution per employee per year was enough to pay out small amounts to people who retire and live beyond life expectancy.

"What we call Social Security has two different meanings. What the voters were sold or think of it as is a long term contract with the government where we pay in as we work and take payments back when we retire. They hold it in that lockbox for safekeeping and compounding on our behalf. Of course none of that is true"

Yes. Correct me if I am wrong. We recently heard SS is solvent till 2035 at which point it will run out of money!

And we should be glad because *that* estimated date is the same as the estimate last year. Yet I haven't heard any MSM discussing how such a calculation HAS to be absurd. Like Doug points out there is no money sitting anywhere for safekeeping.

It is all a moving target. All based on assumptions about what is coming in keeping some sort of pace with what is going to be paid out.

As JDN points out only the government (and apparantly not every government - Europe which is tied to the Euro cannot print money) can make money out of thin air and claim it has value

Bottom line I don't beleive the year 2035 has much meaning. It is all smoke and mirriors. Where is the outrage in MSM? It will emerge only if Romney wins.

CCP, I don't know the numbers but one problem with solvency is that we already took 2 points off the pay in amount - temporarily. The other problem is that the funds are all co-mingled with the way out of balance other funds.

Dems propose ending the income cap, taxing it all the up, and tax the payout or cap or end the payout to 'wealthy' recipients, ending the insurance 'I' in FICA and converting it into just one more tax and spend welfare program.

Taxing it all the way up opens it up to lowering the rates. Means testing the payouts ends the sacred but phony that is my money mentality that protected the program all these decades. It becomes just another run of the mill general welfare program subject up to normal budget negotiations like everything else.

For how long were people going to believe there was a lockbox?

Social security on its current path is not the third rail of politics that it was 10 or 20 years ago IMHO. The reformers keep saying no one over 55 will be affected. Everyone else is currently on the pay in side of the ledger.

When Texas Gov. Rick Perry, then in the early stages of his short-lived quest for the Republican presidential nomination, referred to Social Security as "a Ponzi scheme," he was excoriated by the press, left and right, and by his fellow Republicans, as well. Earlier this week, government actuaries revealed that Perry was correct.

That revelation, which was greeted with a ho-hum by the media, basically announced that by 2033, 21 years from now, the so-called "Social Security trust fund" will be empty.

The only reason this was even announced is because we are approaching a presidential election campaign, and in response to Perry's much-derided claim, the government's actuaries, who originally told the Obama administration and the public that the fund would be solvent until 2036, re-examined their numbers and concluded that it will be in the red three years earlier than they thought.

This revelation should come as no surprise to those who monitor the government and its deceptive ways. When he first introduced Social Security, President Franklin D. Roosevelt argued that under Social Security the federal government would be holding your money for you. He deceptively fostered the idea that Social Security would be a savings account, into which employees and employers would make contributions and out of which guaranteed monies would be paid to those who reached the age of 65. Essentially, he claimed that you'd get your money back.

Eventually, the government would acknowledge that what it first called a savings account and then called old-age insurance and then said would be fortified by a trust fund did not even establish a contractual obligation to those who have paid the Social Security tax -- which would be all of us.

-

The politicians believed him, but the actuaries and the judiciary understood that the government would never hold anyone's money for him — as if it were the custodian of a bank account. In the first of several challenges to the constitutionality of Social Security, the Supreme Court found that the Social Security fund did not consist of your money. It was merely tax revenue.

Did you know that?

It also held that since Congress' law-making authority is limited to the 16 discrete delegated powers granted to it in the Constitution (a truism few in Congress accept as binding) but its spending authority is open-ended (a conclusion that must torment James Madison's ghost), Congress could collect funds, claim it was holding the funds in a savings account and then spend those funds as it saw fit — for those in need after age 65 or for any other purpose.

Did you know that?

And, in a curious yet revealing one-liner in the Supreme Court opinion upholding the constitutionality of Social Security, even the court recognized that there would be no trust fund in the traditional sense when it found that the tax dollars collected and supposedly designated for Social Security were "not earmarked in any way."

Did you know that?

Eventually, the government would acknowledge that what it first called a savings account and then called old-age insurance and then said would be fortified by a trust fund did not even establish a contractual obligation to those who have paid the Social Security tax — which would be all of us.

Thus, the Feds have conceded and the courts have agreed that the money you have involuntarily contributed to the so-called trust fund is not yours and can be spent by the government as it pleases, just like any other revenue that the Feds collect.

Did you know that?

The trust fund is not money that the government "holds" for you, as FDR promised.

It is not money to which you have a lawful claim, as he claimed.

It is not a guarantee for you, as he led the public to believe.

The so-called "trust fund" is merely the difference between what is collected and what is paid out. And the Feds just acknowledged that in 21 years, they are likely to pay out more than they will collect.

Perry did not succeed this time in his quest for the Republican presidential nomination. But he did succeed in articulating a hard truth: The same federal government that prosecutes people like Bernie Madoff for paying out more than they collect does the very same thing under the color of law.

Is a Ponzi scheme — which is basically theft by deception — lawful just because the government runs it? The Supreme Court has said yes. Perry has said no.

There is a fear on the left that the GOP will shamelessly exploit the current scandals for political gain. Unfair because government was big and out of control under all administrations (and we only hold Republican administrations accountable)? FYI to the CinC, the political executive branch is above the bureaucracy in federal power just like the civilian leadership is above the joint chiefs in war. The party in Las Vegas happened under your watch. They got caught and you got caught not paying attention while setting the same example. Worse yet that was the President told private businesses not to waste money in Vegas! http://www.lasvegassun.com/news/2009/feb/10/las-vegas-mayor-says-obama-owes-city-an-apology/

GSA for those outside of government is a monstrosity of an agency that, believe it or not, operates to make all the other agencies conform to a set of rules relating to efficiency and good government practices in areas like purchasing and contracting. They are the experts on spending taxpayer money. They don't defend our shores, they don't clean the environment, they don't enforce securities and exchange law, regulate interstate commerce, feed the poor or deliver meds to the elderly. They do NONE of it.